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The Self-Employment Tax Rates for Michigan in 2022

Michigan flag and employee icons representing self-employment tax rates and laws in the state

The Self-Employment Tax Rates for Michigan in 2022

December 9, 2022

Michigan flag and employee icons representing self-employment tax rates and laws in the state

peakreliance

Accounting, Bookkeeping, Taxes

 

Self-Employed Tax Rates in Michigan tend to be the highest in the country. Unless you have a very large company, chances are you’ll need to pay income taxes on some of your earnings as well. Fortunately, there are various ways you can reduce your tax bill so that you end up paying less. In general, self-employment taxes fall into three main categories: social security and Medicare taxes; self-employment tax (SE tax); and excise taxes. Let’s take a look at how those differ and what each of them costs you in terms of money. 

Social Security and Medicare Taxes for Self-Employed Taxpayers in Michigan in 2022? 

The amount you pay in Social Security and Medicare taxes as a self-employed taxpayer in Michigan in 2022 will depend on your income and how much you pay as a percentage of income. How you prepare for these taxes can affect how much you pay and, thus, how much your taxes decrease. There are a few things you can do to ensure a lower tax burden as a self-employed taxpayer in Michigan in 2022. 

Self-Employment Tax (SE tax) for Self-Employed Taxpayers in Michigan in 2022 

The most important thing you can do is find a lower-paying job. This may seem obvious, but it’s easy to get distracted by all the new opportunities that come with self-employment. Often, the best way to start looking for a new job is to get your current one filled out and transferred to a new position. Once you’ve found a new job, make sure you let your new employer know that you’re interested in moving. This could be the perfect opportunity to start looking for a new job. 

 SE Tax for Self-Employed Taxpayers in Michigan in 2022 

On the surface, the idea of paying taxes on earnings from a new business might sound like a good thing. After all, you’re not just paying taxes on your income, you’re also paying taxes on your profits. However, the reality is that in most cases, the amount of income tax you pay as a self-employed taxpayer in Michigan in 2022 will be lower as a percent of your income if you’re single and not married. In fact, solo practitioners in Michigan are required to pay a 0% flat rate on their income from January 1, 2022, through December 31, 2022. This flat rate applies regardless of whether you’re the primary or a sublessor in a business. Thus, the only person who pays taxes on income from a sublicensed business is the person who owns the business. That person is the taxpayer. As a solo practitioner, you’ll pay income taxes on your worldwide income just like anyone else, regardless of where you live. Thus, in 2022, if you’re single and not married, you’ll pay income taxes on the worldwide income of $0, $5,000, or $10,000, respectively. 

Excise Taxes for Self-Employed Taxpayers in Michigan in 2022 

You’re likely familiar with excise taxes, which are levied on specific products or services and then collected as a tax. In the case of excise taxes, you’re actually required to pay the tax even though you don’t typically consider yourself a consumer of the product or service in question. For example, a retailer may determine that the price of alcohol purchases made by its employees and/or contracted workers is too high and impose an excise tax on those purchases. The retailer then may ask the government to collect the tax as a tax on the entire population, as opposed to a select group of consumers. The excise tax is then collected as a tax on the entire group of people who are not paying the higher price for alcohol. Similarly, an employer may decide to impose a retirement plan tax on their employees who are required to contribute to that plan. The tax is then collected as a tax on the entire group of people not just the individuals who are required to contribute. 

Conclusion 

The amount you pay in taxes as a self-employed taxpayer in Michigan in 2022 will depend on a number of factors, including your income and the amount of taxes paid as a percent of income by other taxpayers in your industry. There are a few things you can do to lower your tax bill as a solo practitioner in Michigan in 2022. Find a lower-paying job and don’t let yourself get distracted by all the new opportunities that come with being self-employed. 

Need help with your self-employment taxes in Michigan? Contact us at +1 (718) 218-5558 or hi@peakreliance.co to learn more about our services and get expert assistance with your tax obligations.

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Self-Employment Tax Rates in Ohio in 2022 

A bustling cityscape in Ohio, with tall buildings and an employment icon on the right.

Self-Employment Tax Rates in Ohio in 2022 

December 8, 2022

A bustling cityscape in Ohio, with tall buildings and an employment icon on the right.

peakreliance

Accounting, Bookkeeping, Taxes

When you trade jobs frequently, it’s easy to overcompensate for a challenge by adding more responsibilities or tasks. Consequently, in the future, you might want to take on less-than-desirable jobs instead of continuing your current gig. That’s when tax law comes into play. Self-employment tax rates in Ohio are similar to other competitive manufacturing states like Indiana and Illinois. However, unlike these other states, self-employment taxes in Ohio are low. That means companies operating in the state would be better off if they avoided creating jobs altogether and only self-employed people who are willing to work multiple years at one time qualify for this state’s low self-employment tax rate. 

Self-Employment tax rates in the U.S. 

The U.S. has the second-highest employment rate among developed countries, but it remains one of the most poverty-stricken nations in the world. More than a third of the workforce is unemployed and 24 percent of those are not in full-time employment. Employers with more than one employee in the U.S. are required to report those without a job on a self-employment tax return. The self-employment tax rate in the U.S. currently ranges from 18 percent to 24 percent. 

Ohio Self-Employment Tax Rate 

As a self-employed individual, you must pay Ohio self-employment tax, since you don’t have an employer to withhold those federal payments on your behalf. The Ohio self-employment tax totals 15.3%, with 12.4% covering Social Security and 2.9% going to Medicare.  

What forms do I need to file taxes in Ohio?

To make payments to Ohio self-employment tax, you will need to use the federal Form 1040-ES, Estimated Tax for Individuals. This form includes a worksheet that can help you determine whether you are required to file quarterly estimated tax.

In 2022, Self-Employment Tax Rates in the U.S. 

The rates on self-employment tax returns will change in 2022. From there, businesses will have to decide how they want to proceed. Currently, most businesses are required to pay the entire income tax on all revenue generated from self-employment. However, over time, that tax is expected to decline as more companies enter the private sector and employ more people. 

Businesses with More than 1 Employee in Ohio 

In 2022, businesses that employ more than one person in the U.S. will be allowed to write off the income from that employee on their tax return. Currently, these are allowed only for business expenses. Over time, these businesses are expected to use these funds to buy more goods and services from retailers and manufacturers, who will be able to write off the costs of employees as part of their annual income.  

Self-Employment Tax Opportunity in Ohio 

Before 2022, businesses wouldn’t be allowed to write off the income from employees who are self-employed. However, in that year, the IRS will allow firms to add a new type of entity to receive their own version of the self-employment tax benefit. This new type of entity will be called an “affiliated entity” and will be treated as if it were an employer for tax purposes. 

How to Avoid Self-Employment Taxes in Ohio 

One of the best ways to avoid self-employment taxes in the future is by following proper tax planning. For example, you may have a general tax savings plan that accounts for depreciation and other expenses that may be charged against your income tax return. However, if you don’t include those expenses in your plan, they may become even more attractive to you as they become more expensive to cover. Another good way to avoid self- employment taxes in the future is by making a plan for retirement. For example, many people don’t plan for retirement in their day to day work but instead automate their retirement savings by setting up a retirement account on his or her behalf.  

Final Thoughts 

The years ahead will be filled with challenges and challenges will be yours to overcome. Those challenges will be made easier when you understand your tax options and come to an informed decision.  

Need help with your self-employment taxes in Ohio? Contact us at +1 (718) 218-5558 or hi@peakreliance.co to learn more about our services and get expert assistance with your tax obligations.

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Unlock Your Business Potential: 6 Accounting Secrets to Smarter Decisions

An accountant working on a computer, calculator, notebook, and currency notes, showing the tools and processes used in accounting

Unlock Your Business Potential: 6 Accounting Secrets to Smarter Decisions

December 7, 2022

An accountant working on a computer, calculator, notebook, and currency notes, showing the tools and processes used in accounting

peakreliance

Accounting, Bookkeeping, Taxes

Running a business comes with a whole host of responsibilities. From managing employees to handling customer service to staying on top of the finances, there’s a lot to manage. But one of the most important things you can do for your business is to be savvy with your accounting. Accounting is a crucial part of any business, and it’s often the key to making informed decisions that can have a big impact on the success of your business.

In this blog post, we’ll take a look at the basics of accounting, the secrets to making smarter decisions, common accounting mistakes that small businesses make, and tips to help you manage your accounting and bookkeeping more effectively. We’ll also provide you with some tools and resources to help you get started, as well as courses to help you become an accounting pro.

What is Accounting?

Accounting is the process of recording, analyzing, and reporting financial information about a business. It’s the language of business and involves tracking and recording financial transactions, measuring performance, and preparing financial statements. Accounting helps you understand the financial position of your business and make decisions based on this information.

For small businesses, accounting is especially important. It’s the key to making informed decisions that can have a big impact on the success of your business. With accurate accounting and bookkeeping, you can make decisions that will help your business grow and succeed.

Benefits of Accounting

Accounting is a powerful tool for small businesses. Having an accurate and up-to-date accounting system in place can help you make better decisions, plan for the future, and ensure you’re meeting your financial goals. Here are some of the key benefits of accounting:

  • Improved financial decision-making: Accounting helps you make informed decisions based on accurate financial data.
  • Better cash flow management: Accounting helps you track and monitor your cash flow and adjust your spending accordingly.
  • Increased efficiency: Accounting helps you identify areas of inefficiency and make changes to streamline processes.
  • Tax compliance: Accounting helps you stay up-to-date with your tax obligations and make sure you’re compliant.
  • Improved budgeting: Accounting helps you create and stick to a budget, giving you a better understanding of your financial situation.
Understanding the Basics of Bookkeeping

Bookkeeping is the process of recording and tracking financial transactions. It’s the foundation of accounting and involves recording all of your business’s financial transactions, such as sales, purchases, and expenses. Bookkeeping helps you track your income and expenses, which is essential for staying on top of your finances and making informed decisions.

Bookkeeping is the first step in accounting, and it’s important to make sure it’s done accurately. It’s important to keep accurate records of all financial transactions and to know how to use bookkeeping software. This will help you to more accurately track your finances and make better decisions.

Accounting Secrets to Smarter Decisions

Accounting isn’t just about tracking and recording financial transactions. It’s also about using this data to make informed decisions that will benefit your business. Here are some accounting secrets to help you make smarter decisions:

  • Analyze your financial data: To make smarter decisions, you need to analyze your financial data. Look for trends, identify areas of improvement, and use this data to make decisions that will benefit your business.
  • Set goals: Setting goals will help you stay focused and ensure you’re taking the right steps to reach your goals. Set short and long-term financial goals and use your financial data to track your progress.
  • Monitor your cash flow: Monitor your cash flow regularly and adjust your spending accordingly. Having a good understanding of your cash flow will help you make better decisions and plan for the future.
  • Track your expenses: Tracking your expenses will help you identify areas of inefficiency and make changes to save money.
  • Invest in accounting software: Investing in accounting software will help you save time and make sure your financial data is accurate and up-to-date.
Common Accounting Mistakes Small Businesses Make

Accounting mistakes can be costly and can have a big impact on the success of your business. Here are some of the most common accounting mistakes small businesses make:

  • Not tracking expenses: Not tracking your expenses can lead to overspending and cash flow problems.
  • Not monitoring cash flow: Not monitoring your cash flow regularly can lead to financial problems down the line.
  • Not staying organized: Not staying organized can lead to accounting errors and lost invoices.
  • Not investing in accounting software: Not investing in accounting software can lead to inaccurate data and inefficiency.
  • Not keeping accurate records: Not keeping accurate records can lead to mistakes and compliance issues.
Tips to Effectively Manage Accounting & Bookkeeping

Managing your accounting and bookkeeping can be a daunting task, but it’s essential for the success of your business. Here are some tips to help you effectively manage your accounting and bookkeeping:

  • Invest in accounting software: Investing in accounting software is one of the best ways to save time and ensure your financial data is accurate and up-to-date.
  • Keep accurate records: Keeping accurate records of all your financial transactions is essential for staying on top of your finances and making informed decisions.
  • Monitor your cash flow: Monitor your cash flow regularly and adjust your spending accordingly.
  • Track your expenses: Tracking your expenses will help you identify areas of inefficiency and make changes to save money.
  • Set goals: Setting goals will help you stay focused and ensure you’re taking the right steps to reach your goals.
Tools and Resources to Help Small Businesses Manage Their Accounting

There are many tools and resources to help small businesses manage their accounting. Here are some of the best tools and resources to help you get started:

  • Accounting software: Accounting software is essential for tracking and recording financial transactions, measuring performance, and preparing financial statements.
  • Accounting templates: Accounting templates are great for helping you create and maintain accurate financial records.
  • Financial calculators: Financial calculators can help you calculate things like loan payments and interest rates.
  • Accounting books: Accounting books can help you better understand accounting principles and how to use them to make smarter decisions.
Courses to Help With Accounting and Bookkeeping

If you’re looking to become an accounting and bookkeeping pro, there are many courses available to help you get started. Here are some of the best courses to help you become an accounting and bookkeeping pro:

  • Accounting Fundamentals: This course covers the basics of accounting and bookkeeping, such as setting up accounts, recording transactions, and preparing financial statements.
  • Advanced Accounting: This course covers Accounting concepts with lot many case studies to solve. Approaching complex topics through case studies is the best way to understand them and you will find lot many in this course.
  • Financial Modeling: This course covers the basics of financial modeling, such as spreadsheet design, financial analysis, and data visualization.
  • QuickBooks: This course covers the basics of QuickBooks, the most popular accounting software for small businesses.

 

Conclusion

Accounting is a powerful tool for small businesses and can be the key to making informed decisions that will benefit your business. This blog post has provided you with the basics of accounting, the secrets to making smarter decisions, common accounting mistakes that small businesses make, and tips to help you manage your accounting and bookkeeping more effectively. We’ve also provided you with some tools and resources to help you get started, as well as courses to help you become an accounting pro.

If you’re looking for help with your accounting and bookkeeping, contact Peak Reliance today. Our experienced accountants can help you set up an accounting system, manage your finances, and make smarter decisions. Call us at +1 (718) 218-5558, or email us at hi@peakreliance.co. We look forward to hearing from you!

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2023 Tax Filing Deadlines: Avoid Penalties with Our Comprehensive Guide

Everything You Need to Know About 2023 Tax Filing and Extension Deadlines

2023 Tax Filing Deadlines: Avoid Penalties with Our Comprehensive Guide

December 6, 2022

Everything You Need to Know About 2023 Tax Filing and Extension Deadlines

peakreliance

Accounting, Bookkeeping, Taxes

Tax filing and extension deadlines for 2023 are quickly approaching and it is important to be aware of them in order to avoid costly penalties. Tax filing and extension dates vary from year to year, so it is important to stay up to date on the current deadlines. Knowing the dates and understanding the consequences of not meeting them is critical for anyone looking to avoid a costly penalty. This article will provide an overview of the 2023 tax filing and extension deadlines, as well as important information on how to submit an extension request and the consequences of not meeting the deadline. With this information, you can ensure that you are filing your taxes on time and avoiding any costly penalties.

Overview of 2023 Tax Filing and Extension Deadlines

The tax filing and extension deadlines for 2023 vary depending on the type of taxpayer you are and the type of tax return you are filing. The following table provides an overview of the tax filing and extension deadlines.

Tax Type

Tax Filing Deadlines

Extension Deadlines

Individual Income Taxes

April 15

October 15

Corporate Taxes

April 15

September 15

Trust and Estate Taxes

April 15

October 15

Self-Employment Taxes

March 15

September 15

Other Taxes

April 15

September 15

Submitting an Extension Request

If you are unable to meet the standard tax filing or extension deadline, you can submit an extension request form. Depending on the type of tax return you are filing, you may be able to file a paper extension request form, or you may be required to electronically file an extension request. Paper extension request forms are typically provided at the time an individual tax return is due. If you are required to electronically file an extension request, you will be provided with an official IRS form. You can find extension request instructions and forms on the IRS website. If you meet the criteria for an extension request, it is important to submit the form on time to avoid a penalty. Taxpayers who are granted an extension are required to pay any taxes they owe by April 15, the following year. If you are granted an extension and are unable to pay the taxes you owe by the April 15 deadline, you can avoid a penalty by entering into a payment plan with the IRS. If an extension request is accepted, the IRS will not charge interest on any taxes that are paid past the original deadline.

Penalties for Not Meeting the Deadlines

If you are unable to meet the standard tax filing or extension deadline, you will face a penalty. The severity of the penalty varies depending on the type of tax you are filing and the length of time you are unable to meet the deadline. For example, failing to file an individual tax return by the standard deadline will result in a failure-to-file penalty. The failure-to-file penalty is 5% for each month that the tax return is late. The maximum penalty for a failure-to-file tax return is 25% of the amount due on the return. If you fail to pay taxes that are owed by the standard deadline, you will be charged a failure-to-pay penalty. The failure-to-pay penalty is 0.5% of the amount due for each month that the taxes are not paid. The maximum penalty for a failure-to-pay tax bill is 25%.

Tax Filing and Extension Deadlines for Self-Employed Individuals

If you file as self-employed, you will be required to file a Form 1040 with estimated taxes. As a self-employed individual, you are responsible for paying taxes throughout the year, rather than waiting until April to pay your taxes as an employee would. Self-employed individuals are required to file taxes on a quarterly basis and pay any taxes due on a quarterly basis. The standard tax filing deadline for self-employed individuals is March 15. However, if you are a self-employed individual, you may be able to submit an extension request to extend the filing deadline. You will be required to submit an extension request electronically via the IRS website. If you meet the criteria for an extension request, the IRS will extend the filing deadline to September 15.

Tax Filing and Extension Deadlines for Corporations

If you file as a corporation, taxes are due on the 15th of the month following the end of the quarter. Taxes are due on April 15 for the third quarter, which ends on September 30. If you are filing as a corporation and are unable to meet the standard tax filing deadline, you can submit an extension request. You will be required to submit an extension request electronically via the IRS website. If you meet the criteria for an extension request, the IRS will extend the filing deadline to September 15.

Tax Filing and Extension Deadlines for Non-Profits

If you are a non-profit organization, taxes are due on the 15th of the month following the end of the quarter. Taxes are due on April 15 for the third quarter, which ends on September 30. If you are a non-profit organization and are unable to meet the standard tax filing deadline, you can submit an extension request. You will be required to submit an extension request electronically via the IRS website. If you meet the criteria for an extension request, the IRS will extend the filing deadline to September 15.

Tax Filing and Extension Deadlines for Individuals

If you file as an individual, taxes are due on the 15th of the month following the end of the quarter. Taxes are due on April 15 for the third quarter, which ends on September 30. If you are an individual and are unable to meet the standard tax filing deadline, you can submit an extension request. You will be required to submit an extension request electronically via the IRS website. If you meet the criteria for an extension request, the IRS will extend the filing deadline to October 15.

Tax Filing and Extension Deadlines for Trusts and Estates

If you are a trust or estate that is required to file an income tax return, taxes are due on the 15th of the month following the end of the quarter. Taxes are due on April 15 for the third quarter, which ends on September 30. If you are a trust or estate and are unable to meet the standard tax filing deadline, you can submit an extension request. You will be required to submit an extension request electronically via the IRS website. If you meet the criteria for an extension request, the IRS will extend the filing deadline to October 15.

Tips for Meeting the Tax Filing and Extension Deadlines

The following are tips for meeting the tax filing and extension deadlines. Follow the tips below to ensure that you meet the tax filing and extension deadlines, do not incur a penalty and receive your tax return by the April 15 due date.

Resources for Further Assistance

Tax filing and extension deadlines are critical. It is important to be aware of them in order to avoid costly penalties. With this article, you can ensure that you meet the deadlines and receive your tax return by the April 15 due date. If you have any questions about the tax filing and extension deadlines, contact a tax professional.

Get the professional help you need to ensure you meet all your tax deadlines – trust Peak Reliance to guide you through the process.

Check out our pricing plans or call us at +1 (718) 218-5558 for more information. You can also email us at hi@peakreliance.co

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How Far Back Can the IRS Audit a Business?

IRS Audit

How Far Back Can the IRS Audit a Business?

December 5, 2022

IRS Audit

peakreliance

Accounting, Bookkeeping

Getting a notification from the IRS about an audit may completely destroy your day. How far back may you be audited by the IRS? It is only normal to be concerned about an IRS audit, especially given how long they may go. Internal Revenue Service audits typically cover a period of no more than three years, although there are several exceptions.

What is an audit?

An audit for companies usually means a financial statement audit and it is the most common type of audit. A financial audit is an objective review and evaluation of an organization’s financial statements to ensure that they are a fair and accurate portrayal of the transactions they purport to reflect. The audit might be performed internally by organization workers or externally by a Certified Public Accountant (CPA) company.

The word “audit” may make you sweat instantly, but knowing what it is and how the Internal Revenue Service (IRS) operates may help you feel a little more at ease. Some audits are minor inconveniences, while others are burdensome. When the IRS audits your company, they conduct a thorough examination of your financial records. This includes reviewing your financial statements and ensuring that they correspond with your bookkeeping.

They usually want to make sure you aren’t underreporting your income or overreporting your deductible expenses. In either situation, you are declaring a lower tax liability than you actually have.

What triggers IRS to conduct audit?

It’s impossible to predict an audit. But they’re prompted for one of these three reasons:

  1. Random choice through the IRS system,
  2. Computer screening of returns that fall outside the IRS norms,
  3. Related examination in case your tax return is connected to another taxpayer who is being audited, you may be audited because of your connection.
The different ways you can be audited

There are 3 ways in which IRS can do this:

  1. Correspondence audit: The IRS will request further information through email or regular mail. Typically, this is due to an income omission or some major miscalculation. You must pay the amount specified in the communication, contest it with a lawyer, and/or submit the relevant documentation, such as receipts for deductions or missing W2 forms.
  2. Office audit: The IRS may choose to have an in-person interview with you. You will need to visit the IRS office. It’s a good idea to have a CPA or a lawyer with you. You may wind up paying more in taxes or penalties, or you may not have to pay anything at all if you contest it.
  3. Line-by-line audit: This was selected at random. The IRS examines each line of your tax return in order to create the “norms” that will trigger future audits.
What do you need to provide?

You will get a formal request from the IRS requesting the precise records we need to view. The records that the IRS could ask for are listed below.

  • Bills
  • Canceled checks
  • Legal papers
  • Loan agreements
  • Receipts

Some electronic records generated by tax software are accepted by the IRS. In place of or in addition to other records, the IRS may seek these.

The law mandates that you maintain all the documents you used to complete your tax return for a minimum of three years from the filing date.

How far back can an audit go?

In an audit, the IRS typically considers returns filed during the last three years. However, the IRS may audit more preceding years if a significant mistake is found during the audit process. The IRS seldom conducts audits that stretch back more than six years.

Although there is no statute of limitations for some tax matters, the IRS has a six-year statute of limitations for audits. There is no time restriction for an audit, for example, if Form 3520, which is related to foreign income or inheritances or gifts exceeding $100,000, is not filed.

Consequences of an Audit

Three outcomes are possible for an audit:

  1. No change: an audit in which all the things under evaluation have been validated and there are no errors or understated returns.
  2. Agreed: a review in which the IRS suggested adjustments, and you accept and understand them.
  3. Disagreed: An audit in which the IRS has suggested adjustments, which you comprehend but with which you disagree.
A Tex Levy

A tax levy is a result of an audit and allows the IRS to lawfully collect your property to satisfy a debt, might result after an audit. Your assets may be confiscated to cover your tax bills if you owe money and fail to reply to IRS notifications CP501 or CP504 (Notice of Demand for Payment and Final Notice of Intent to Levy, respectively).

Such assets include:

  • Wages
  • Bank accounts
  • Real estate
  • Retirement income
  • Social Security
How can Peak Reliance help?

Your books should be the first thing you organize if you’re concerned about an audit. Our team at Peak Reliance specializes in assisting proprietors of small businesses that have gotten behind with their accounting. Our knowledgeable bookkeepers can assist you to organize your finances so that you are better prepared to handle any tax issues.

Once your financial records are up to date Peak Reliance will also help with filing your late taxes, determining your tax due and even advocating for you before the IRS. Check out our pricing plans or call us at +1 (718) 218-5558 for more information. You can also email us at hi@peakreliance.co

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How to Prepare for a Smooth Year-End Bookkeeping and Accounting Process for Small Business Owners

Year End Bookkeeping and Accounting Checklist for Small Business Owners

How to Prepare for a Smooth Year-End Bookkeeping and Accounting Process for Small Business Owners

December 4, 2022

Year End Bookkeeping and Accounting Checklist for Small Business Owners

peakreliance

Accounting, Bookkeeping

As a small business owner, it’s important to stay organized and on top of bookkeeping and accounting processes. At the end of each year, it’s especially important to ensure that all of your financial information is up-to-date and accurate. Taking the time to properly prepare for your year-end bookkeeping and accounting process can make a huge difference in the overall success of your business. It’s a great way to ensure that your records are complete and accurate and that you’re in good financial standing with the IRS. With the right approach, you can make the most of your year-end bookkeeping and accounting process and have peace of mind that everything is in order. Read on to learn more about how to prepare for a smooth year-end bookkeeping and accounting process for small business owners.

Understanding the importance of year-end bookkeeping and accounting

Every business needs to have proper documentation of all financial transactions. Bookkeeping and accounting keep track of income and expenses so that you can properly report this information to the IRS. Your financial records are also used to create financial statements, such as balance sheets and profit and loss statements. The year-end bookkeeping and accounting process is an excellent opportunity to take a step back and look at the bigger picture. As a small business owner, you may find yourself so focused on daily operations that you may lose sight of the bigger picture. During your year-end bookkeeping and accounting process, you can take a step back and look at the bigger picture and find ways to improve how your business is run.

Gather financial documents

The first thing you’ll want to do during your year-end bookkeeping and accounting process is gathering all of the financial documents related to your business. You’ll want to gather documents such as receipts, invoices, payroll information, and tax records. Your receipts are a great place to start. Many small business owners use cash or a cash register, but keeping an accurate record of your cash flow can be tough. Having a record of your expenses is important, particularly if you plan on claiming these as deductions on your taxes. With an online accounting platform, such as Xero, you can easily record all of your receipts with the click of a button. You can even set up your receipts to be automatically uploaded to your books so you don’t have to worry about losing track of them.

Review financial statements

After you’ve gathered all of your financial documents, it’s time to review them. You’ll want to review financial statements such as your profit and loss statement, your balance sheet, and your cash flow statement. You can use these documents to gain a better understanding of how your business performed during the year. These documents can help you identify areas of your business that may require improvement. For example, if your cash flow statement indicates a significant increase in cash outflow, you may want to review your financial records to see if you can identify a reason for this. Your profit and loss statement is an excellent way to view your business’ profitability at a glance. You can use your balance sheet to get a better understanding of the company’s financial health, including assets, liabilities, and equity.

Identify any discrepancies

One of the main reasons to review your financial documents during your year-end bookkeeping and accounting process is to identify any discrepancies. If you notice any discrepancies, you want to address them as soon as possible to avoid any issues with the IRS. Why take the time to identify and address any discrepancies? Let’s break it down:

  • Your financial records are used to report your taxes. If you don’t correct an error or discrepancy, it may result in inaccurate or incorrect tax information.  
  • Your financial records are used to apply for loans. If you don’t correct an error or discrepancy, you may not be approved for a loan. 
  • Your financial records are used to apply for grants. If you don’t correct an error or discrepancy, you may not be eligible for grant funds. 
  • Your financial records are used to apply for investors. If you don’t correct an error or discrepancy, you may lose interested investors.
Prepare financial forms and reports

As you identify discrepancies and make changes to your records, you’ll want to prepare financial forms and reports. The first financial form you’ll want to prepare is a profit and loss statement. Keep in mind that even though you’re preparing your profit and loss statement at the end of the year, you want to include information from the entire year. Your profit and loss statement is great for seeing how your business performed over the entire year. You’ll also want to prepare a balance sheet and a cash flow statement. You’ll also want to prepare a list of your business expenses. This is sometimes referred to as an outflow statement. Keep in mind that for expenses, you want to record the date and the amount you spent.

Review bank reconciliations

During your year-end bookkeeping and accounting process, you’ll want to take the time to review your bank reconciliations. A bank reconciliation is simply a review of your bank statements to make sure that your records and your bank statements are in sync. You can use your bank statements to make adjustments to your records if necessary. Your bank reconciliations are an excellent way to make sure that your financial records are up to date. If there are issues with your bank reconciliations, you want to address them as soon as possible.

Update accounts

Next, you’ll want to update your accounts and categorize your financial documents. You want to make sure that your accounts are updated with your financial information so that you can easily access it at any time. Your accounts should be set up in a way that makes sense for your business. You want to make sure that your information is easy to find and easy to understand.

File taxes

The final step in your year-end bookkeeping and accounting process is to file your taxes. At this point, you should have all of your financial information, such as financial statements, withheld taxes, and income and expenses documented. You can use this information to file your taxes. If you use accounting software such as Xero, you can prepare your taxes automatically. This means you can get them out of the way early and have them filed and in the hands of the IRS before the year ends.

Prepare for next year

During your year-end bookkeeping and accounting process, you can also take the time to prepare for next year. Make sure that all of your financial information is up-to-date and accurate.  Identify areas of improvement and make changes to your business operations accordingly. Organize your financial records so that they are easy to find and understand. These are excellent steps to take to ensure that your business is in great shape for next year.

Get help from an accountant if needed

While the year-end bookkeeping and accounting process is beneficial for small business owners and entrepreneurs, it can be challenging to do it all on your own. If you feel like you would benefit from additional help, you can consider hiring an accountant. An accountant can help you gather your financial information and prepare your taxes. Hiring an accountant is an excellent way to get help with your financial records, particularly if you’re new to business ownership and accounting. An accountant can help you save time and stress and make sure that your records are accurate. They can also help you identify areas of improvement and find ways to run your business more efficiently. Overall, hiring an accountant can be a great way to get additional help during the year-end bookkeeping and accounting process and make sure your financial records are in tip-top shape. At Peak Reliance, you can rely on qualified and experienced accountants and bookkeepers to keep your finances in good standing with the IRS. Check out our pricing plans or call us at +1 (718) 218-5558 for more information. You can also email us at hi@peakreliance.co

Conclusion

There is no better time than the end of the year to take a step back and reflect on your business. You can use this time to make improvements, organize your financial data, and file your taxes. The year-end bookkeeping and accounting process is an excellent time for small business owners to get ahead and stay on top of their accounting so that they can focus on running their businesses.



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When to File Your Personal and Business Taxes Separately: A Guide for Small Business Owners

When to File Your Personal and Business Taxes Separately_ A Guide for Small Business Owners

When to File Your Personal and Business Taxes Separately: A Guide for Small Business Owners

December 3, 2022

When to File Your Personal and Business Taxes Separately_ A Guide for Small Business Owners

peakreliance

Accounting, Bookkeeping, Taxes

As a small business owner, there are many decisions to make and one of the most important is when to file your personal and business taxes separately. It’s important to take the time to understand the difference between filing taxes as an individual and filing taxes as a business. Doing your taxes correctly can help you save money, protect your assets, and make the most of the deductions and credits available to you. This guide will provide you with an overview of the pros and cons of filing your personal and business taxes separately, when it is beneficial to do so, and how to go about filing them. With this information, you can make the best choice for your business and ensure you are paying the right amount of taxes.

Overview of filing personal and business taxes separately

Filing taxes is an annual process designed to collect revenue for the government and make sure that everyone pays their fair share. In order to do this, the government uses a system of withholdings and deductions to ensure that their taxes are paid, taking into account income levels, filing statuses, and dependents. The system is designed to be straightforward and easy to understand: everyone pays the same amount of tax on the same types of income in the same way, allowing for a fair and even playing field. Small business owners fall into a slightly different category, however, and their taxes are handled slightly differently. Inside a business, there are two different types of income: the income earned by the business (profit), and the income earned by the individual owners (salary). Taxes are paid on both types of income, but they are calculated and handled in different ways. Filing taxes as a business collects all the business income and calculates the amount of tax that needs to be paid on this income. This is then deducted from the amount of money available to pay the owners. Filing taxes as an individual collects all the income that the owners earn, whether it is business income or personal income. The amount of tax due on this income is then calculated and paid on this amount. The business profit is paid on a different schedule, although some businesses are required to pay quarterly to avoid incurring penalties.

Pros and cons of filing taxes separately

There are both advantages and disadvantages to filing taxes separately for your business and yourself. Filing taxes separately for your business and yourself can help protect your personal assets from your business liabilities. This can be particularly useful for small business owners who are self-employed, such as contractors or freelancers, who don’t have the same level of insurance or protection as employees. Small business owners who file taxes as a business and a personal return can also receive a larger refund since they can claim more deductions from their business income. Filing taxes as a business means that all of your business expenses are tax-deductible, including things like health insurance, advertising and marketing costs, training fees, office equipment, and travel expenses. Personal expenses, such as groceries, clothing, and home utilities, are not.

When it is beneficial to file taxes separately

There are some scenarios when it is beneficial to file your taxes as a business and your personal taxes separately. One of the most common situations in which you might want to file your taxes separately is if you have significant self-employment income, such as from contracting, freelancing, or running a side hustle. This can help protect your personal assets from your business liabilities since business deductions will come off your personal income. You also want to file your taxes separately if you are taking a home office deduction. Since this deduction is based on your personal income, you will only be able to claim it if you file a personal return. If you are claiming a significant amount of deductions, such as for childcare or medical expenses, it can be beneficial to file a separate return for business if you will be receiving a larger refund.

How to file taxes separately

There are a few ways to file taxes separately for your business and yourself, but the most common way is to use a Schedule C form. The Schedule C form is used to calculate the amount of profit your business made during the year and determine what percentage of that amount is due in income tax. If you have significant business expenses, you can also file a Schedule C-EZ form. This is a simplified version of the Schedule C form and is appropriate for businesses with very little expenses.

Deductible business expenses

Business owners can deduct a variety of expenses when calculating their taxes, such as advertising and marketing, office equipment, travel and vehicle expenses, and training and professional development fees. There are also certain personal expenses that can be deducted from business taxes if they are used for business purposes. These include utilities, health insurance premiums, home office expenses, and mileage to and from work.

Determining your filing status

Your filing status determines the amount of tax you owe, as well as whether or not you are eligible for certain tax credits. When you file taxes as a business, you are able to choose your filing status based on your individual filing status. When filing as an individual, you are able to choose between filing as single, married filing jointly, married filing separately, head of household, or qualifying widow(er) with a dependent child.

Calculating your tax liability

The amount of tax you owe depends on a number of factors, including your taxable income and your filing status. When you file taxes as a business, you use your profit as taxable income and your allowable business expenses as deductions. Depending on your filing status and the deductions you are claiming, you will pay either a percentage of your business profit or a certain amount of money.

Claiming tax credits

Tax credits are cash payouts that the government gives back to taxpayers who have paid the appropriate amount of taxes. These credits are typically based on your income level, filing status, and number of dependents. When you file taxes as a business, you can collect some of these credits on behalf of your employees, such as the Child Tax Credit, the Child and Dependent Care Credit, or the Earned Income Credit.

Filing your taxes

The best way to ensure that you are paying the appropriate amount of taxes is to file your personal and business taxes as early as possible. The IRS recommends that taxpayers file their taxes no later than April 15, but many taxpayers are eligible to file an extension. This allows you an additional six months to file your taxes. If you are self-employed and filing your taxes as a business, you can file your taxes at any point during the year, but it is recommended that you file them as early as possible to ensure that you have all the necessary documentation.

Tax planning for small business owners

As a small business owner, you want to make sure that you are paying the appropriate amount of taxes, but you also want to make sure that you are maximizing your deductions where possible. One of the most important things that all small business owners can do is to keep good records. You will want to keep a record of all your business expenses, including mileage to and from work, office supplies, and any travel-related expenses. Keep in mind that you are only allowed to deduct the amount that is above the standard deduction. There are also certain industries that have special deduction rules and limits, so it’s important that you do your research.

Conclusion

Taxes can be complicated, especially for small business owners who have to file both their business taxes and their personal taxes separately. Having clear goals and expectations, knowing what deductions are available, and keeping good records will go a long way in helping you file your taxes successfully. Calling in an accountant for help is the best shot for you. Peak Reliance is a reliable team of professionally seasoned accountants and tax experts that can help you to file both your business and personal taxes separately. Check out our pricing plans or call us at +1 (718) 218-5558 for more information. You can also email us at hi@peakreliance.co




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Look Ahead to the Future: What Sales Tax Will Be in California in 2023? 

What Sales Tax Will Be in California in 2023

Look Ahead to the Future: What Sales Tax Will Be in California in 2023? 

December 2, 2022

What Sales Tax Will Be in California in 2023

peakreliance

Accounting, Bookkeeping, California, Taxes

California is one of the nation’s most populous states and one of the most important economic engines in the country, but it has a lot of growing pains. That’s why Peak Reliance is here to help you prepare for what lies ahead with the sales tax landscape in the Golden State in 2023. Peak Reliance is a reliable team of professionally seasoned accountants. Keep reading to get an overview of the current sales tax landscape, as well as a glimpse into what type of changes could be coming your way soon. 

What Is Sales Tax? 

If you’ve ever purchased something in California, you’ve undoubtedly paid some state sales tax. You may even have paid it twice: State sales tax is an excise tax that’s levied on the sale of goods and services. In other words, you pay it to the retailer, not the government.  

How Is Sales Tax Collected in California? 

The vast majority of states that collect sales tax use a “use tax” system, which means that the seller is responsible for collecting it and sending it to the state. In California, however, the retailer collects the tax, but they pass the cost on to the customer by charging them tax at the register. California has a “franchise tax” system, which means that the state is responsible for collecting sales tax and remitting it to the state. This is different from having “merchant-only” tax, as in other states, where the retailer does not send tax to the state. 

The Current Sales Tax Rate in California 

The California state sales tax rate is currently 7.5%. The change to this rate took effect in January 2018, when California raised its sales tax rate from 5.5% to 7.5% to “comply with a voter-approved constitutional amendment.” 

Changes to the Sales Tax Base and Rates Likely in California by 2023 

While the state sales tax rate will remain at 7.5% in California in 2023, there are a number of other factors that could change how California sales tax works in the future. In this section, we’ll explore what could change in the sales tax landscape of California in 2023, as well as how likely it is that each of these changes will occur. 

California Sales Tax Base: The sales tax base in California could expand. Currently, California only taxes certain goods, like groceries and prescriptions, and services. If California adopts a system similar to Tennessee’s, which taxes all goods, California sales tax could expand to include many more goods and services. Again, it’s unlikely to happen, but it’s something to keep an eye out for.  

California Sales Tax Rate: The current state sales tax rate in California is 7.5%. The state is unlikely to lower this rate, but it is possible that the state could increase the rate. Again, it’s unlikely and we don’t expect it to happen, but it’s worth keeping an eye out for.  

California Revenue: The adjusted gross income (AGI) threshold for California sales tax is currently $211,000. In 2023, it’s likely that California will lower the threshold, meaning that more taxpayers will be subject to sales tax. 

Other Factors: In addition to the factors listed above, there are a number of other factors that could change the sales tax landscape of California in 2023. For example, it’s possible that California will adopt a “use tax” system, which would mean that the seller would collect the tax and send it to the state. It’s also possible that California will adopt a “merchant-only” tax system, where the retailer does not have to send sales tax to the state, but the retailer collects it. Keep reading to learn more about these factors. 

Summing Up 

We’ve outlined the basics of California sales tax here, as well as some of the factors that could change the sales tax landscape in California in 2023. If you need any help with your sales taxes, Peak Reliance is there to help you. You may call us at +1 (718) 218-5558 or email at hi@peakreliance.co .  

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Here’s How an IRS Audit Works – And How to Prevent It

IRS Audit

Here’s How an IRS Audit Works – And How to Prevent It

December 1, 2022

IRS Audit

peakreliance

Accounting, Bookkeeping

What is an audit?

An audit for companies usually means a financial statement audit and it is the most common type of audit. A financial audit is an objective review and evaluation of an organization’s financial statements to ensure that they are a fair and accurate portrayal of the transactions they purport to reflect. The audit might be performed internally by organization workers or externally by a Certified Public Accountant (CPA) company.

The word “audit” may make you sweat instantly, but knowing what it is and how the Internal Revenue Service (IRS) operates may help you feel a little more at ease. Some audits are minor inconveniences, while others are burdensome. When the IRS audits your company, they conduct a thorough examination of your financial records. This includes reviewing your financial statements and ensuring that they correspond with your bookkeeping.

They usually want to make sure you aren’t underreporting your income or overreporting your deductible expenses. In either situation, you are declaring a lower tax liability than you actually have.

You’ll have a clearer picture of the situation once you’re involved in the aforementioned situation. So, wipe your brow, and let’s get started.

What happens when you get audited?

There are 3 possible outcomes of an audit:

  1. They find out you don’t owe them any money and leave you alone; a hugely popular one.
  2. The IRS finds out you owe them money. So, they make you sign an official document, confirming the amount you owe and so you pay them the due amount.
  3. The IRS finds out you are liable to pay them additional tax, and you disagree with it. In this case, you’ll want the support and expertise of an expert like a bookkeeper, accountant or a CPA.

Peak Reliance has got your back with their exceptionally trained and experienced accounting professionals to cater to all your tax needs.

Depending on your argument, the IRS will either reduce the amount you owe, make you pay the full amount, or throw out the charges altogether.

What triggers an audit?

It’s impossible to predict an audit. But they’re prompted for one of these three reasons:

  1. Random choice through the IRS system,
  2. Computer screening of returns that fall outside the IRS norms,
  3. Related examination in case your tax return is connected to another taxpayer who is being audited, you may be audited because of your connection.
The different ways you can be audited

There are 3 ways in which IRS can do this:

  1. Correspondence audit: The IRS will request further information through email or regular mail. Typically, this is due to an income omission or some major miscalculation. You must either pay the amount specified in the communication, contest it with a lawyer, and/or submit the relevant documentation, such as receipts for deductions or missing W2 forms.
  2. Office audit: The IRS may choose to have an in-person interview with you. You will need to visit the IRS office. It’s a good idea to have a CPA or a lawyer with you. You may wind up paying more in taxes or penalties or not have to pay anything at all if you contest it.
  3. Line-by-line audit: This was selected at random. The IRS examines each line of your tax return in order to create the “norms” that will trigger future audits.
How to prevent an audit?

There is no guaranteed method of avoiding an audit. However, if you do the following, you may significantly lower your chances of being subjected to one.

  • Account for all of your income
    The IRS compares the income and deductions you record on your return with the information provided by others, such as employers, banks, and companies, using the information on Forms W2, 1098, and 1099. Any disparities in reported income numbers that result in underpayment of taxes are a clear red flag for the IRS. It will very certainly prompt additional inquiry.

    So, if you have a side hustle, such as consulting or freelance work, make sure to record it, even if you think you can get away with it
  • Double check your return
    Making a thoughtless mistake on your tax return is one of the simplest ways to ensure a visit from the tax man. The IRS is required to examine your case if there is any omission, miscalculation, or error on your return. Hire a bookkeeper to ensure your records are accurate and tax-ready. Peak Reliance not only prepares your books, but can also submit your taxes for you via a tax filing provider.
  • Stay consistent with your accounting method
    As a business owner, you have the option of using either cash basis or accrual accounting. If you switch back and forth between the two approaches, the IRS may suspect you’re attempting to confuse them. That is when you will be audited.

    Whatever accounting approach you use for your company, be sure it is consistent.
  • Keep it straight—employee or contractor
    When you recruit help, you must correctly designate them as employees or independent contractors. The distinction dictates which taxes must be paid, when they must be paid, and who is responsible for them.

    Employees are often compelled to withhold income taxes and pay unemployment, social security, and Medicare taxes. You do not have to withhold or pay taxes on an independent contractor’s paycheck.
How to make an audit easier

There’s always room for help in elaborated processes and for a task like an audit, help is an integral part of the journey to a successful one. Calling in an accountant for help is the best shot for you. Peak Reliance is a reliable team of professionally seasoned accountants and tax experts that can help you get out of an audit if the need arises. Our accountants can also aid you with their experience so that an audit can be avoided at all costs, but if one does come up, we will make sure to keep you prepared. Check out our pricing plans or call us at +1 (718) 218-5558 for more information. 

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How Much Are California Payroll Taxes in 2022?

How Much Are California Payroll Taxes in 2022?

How Much Are California Payroll Taxes in 2022?

November 30, 2022

How Much Are California Payroll Taxes in 2022?

peakreliance

Accounting, Bookkeeping, California, Taxes

California is one of the most expensive states in which to run a business, and that’s not going to change anytime soon. The state has a complex set of laws governing payroll taxes, and they keep getting more expensive over time. In this article, we take a look at how much employers in the state need to pay payroll taxes as of 2022. We’ll explain the details about the different tax types, how they’re calculated and their effect on your business’s bottom line. 

What is a Payroll Tax? 

The terms “payroll tax” and “payroll withholding tax” are often used interchangeably. However, these two terms actually refer to two very different things. Payroll taxes are the type of taxes employers in the U.S. are required by law to deposit into an employee’s account. This includes both state and federal payroll taxes. Federal law requires employers to withhold payroll taxes from employees’ paychecks. If an employee doesn’t have a sufficient amount of money in their account to cover a certain tax, the employer is required to cover the difference. Federal payroll taxes include: – Medicare tax – This tax applies only to employers with annual payrolls of more than $200,000. It’s a 0.9% tax on the first $200,000 of the employer’s annual payroll, plus an additional 0.9% on the excess amount. – Social Security tax – This tax applies to both employers and employees. Employers pay 6.2% on the first $127,200 of wages, and employees pay the full 12.4% on the first $127,200 of wages, plus an additional 2% on the excess amount of $33,400. – Federal income tax – Employers are required to withhold another 10% of wages paid to employees as federal income tax. 

How Are California Payroll Taxes Calculated? 

The amount of California payroll taxes you’ll have to pay depends on a number of factors. In general, the amount of taxes you have to pay will depend on the amount of wages you pay to each employee. The formula used to calculate California payroll taxes is:

  • Wages paid to employees – The total amount paid in wages for each pay period. California tax laws require that you withhold income tax from this amount.  
  • California income tax withheld – The amount of income tax withheld from each employee’s wages.  
  • Federal tax withheld – The amount of federal payroll taxes withheld from each employee’s wages. 
Who pays California Payroll Taxes? 

Federal law requires that all employers in the U.S. withhold federal payroll taxes from employees’ paychecks. However, California law requires that you also withhold state income tax from your employees’ paychecks. This state income tax is collected by the state and deposited into an account held by the employees. If you’re an employer with employees working in California, you must withhold and pay both state and federal payroll taxes. This income tax is collected by the state and deposited into an account held by the employees. If you have employees working in California, but don’t have a business headquartered there, you don’t have to pay California payroll taxes. 

Which Calculation Is Used for Which Type of Payroll Tax? 

Federal payroll taxes are calculated using the same formula as California payroll taxes. However, the tax rates and brackets change slightly each year. This means that you need to make sure you’re paying the right amount of taxes. You should use a software program to help you track your payroll taxes. If your business has more than $500,000 in annual payroll, you should also consider hiring payroll taxes for your staff. 

Who pays Additional Payroll Tax in California? 

Every business in California is required to pay a gross receipts tax. This is paid on all business sales made in the state. Business owners in the state who have employees working in California who earn more than $400,000 annually may have to pay a gross receipts tax on top of the state’s regular payroll tax. This is an additional tax, called an excise tax, levied by the state. 

Conclusion 

California has a complex set of payroll tax laws, which can make it difficult for employers to stay on top of their tax obligations. However, these laws do impact your bottom line, so it’s important to stay abreast of the latest taxes and payroll tax rules. To stay compliant, you’ll need to track your employees’ earnings and withhold the appropriate amount of taxes from their paychecks. The good news is that payroll taxes are a source of revenue for the government, so they’re worth the hassle. 

If you need help with your payroll taxes in California, Peak Reliance has the necessary experience in organizing the finances. We have experienced and qualified tax experts to assist you. Check out our pricing plans or call us at +1 (718) 218-5558 for more information. 

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California Payroll Taxes, Payroll Taxes, Tax filing, Tax Season

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